I'm the publisher of Forbes magazine, where I write a biweekly column called Innovation Rules. I'm also a regular panelist on cable news' popular business show, Forbes on FOX (with an average viewership of 1.2 million households per show in 2012), and frequent guest analyst on CNBC's The Kudlow Report. My 2004 book, Life 2.0, was a Wall Street Journal business bestseller. I'm also an entrepreneur, an active angel investor, and sit on three outside boards. For co-founding Silicon Valley's largest public affairs organization, the 6,500-member Churchill Club, I'm a past Northern California winner of Ernst & Young's prestigious "Entrepreneur of the Year Award." I earned a B.A. from Stanford University. I lecture up to 50 to 60 times a year on the innovation economy.

IBM Turns 100 -- An Interview with CEO Sam Palmisano

Author’s note: The following is a longer version (1900 vs. 1400 words) of an interview with IBM chief Sam Palmisano published in Forbes magazine.

By a celebratory coincidence, IBM turns 100 years old–on June 16–in the same year it will pass $100 billion in sales. Its start in 1911 was not in a garage but in a merger of four companies that became the Computing-Tabulating-Recording Co. Three years later financier-founder Charles Flint passed the torch to Thomas J. Watson, who renamed the company International Business Machines in 1924. Watson and then his son, Tom Jr., led IBM for nearly six decades. Since 2002 the company’s CEO–only its ninth–has been Sam Palmisano. FORBES publisher Rich Karlgaard talked with Palmisano about IBM’s past and future.

KARLGAARD: Would Tom Watson Sr. be more impressed by the fact IBM has reached $100 billion in revenue or 100 years in age?

PALMISANO: I think 100 years. Why I say 100 years is because Watson believed if you really created value and not just technology you could be around a very long time. That is more enduring than just getting big.

K: What is the biggest bet IBM has made in its 100 years?

P: There are lots of examples along the way, but I think the boldest one was System/360 in the 1960s. Tom Watson Jr. drove a huge transition to the modern computing era. Now, remember, at the time IBM sold punch cards and typewriters and all those sorts of things. So 360 was the biggest bet of its time. I think it was about $5 billion of R&D. The Watsons believed that every decade or so you had to reinvent the company and drive to the future. That was their bias.

K: But you can’t push everywhere. You have to focus.

P: Today we define our space as enterprise and global. We don’t sell to consumers. We have in the past, but we don’t anymore.

K: So why the big publicity around Watson, the computer, and its appearance on Jeopardy!? That seems awfully consumer.

P: Hey, Watson actually beat the two top Jeopardy! champions. But it wasn’t about consumer technology. It was about showing how a natural language interface and advanced analytics could change the paradigm of computing, and come up with questions and answers to problems. When you watch people compete against a machine, you get the impact of the innovation. Now we’re trying to come up with ways to apply Watson’s capabilities to health care and financial markets. We have to do it in a way that people instantly see the promise. The old days of communicating are gone. I can’t sit around and write a book like the real Watsons did and expect to have an affect on things. The world has changed.

K: Speaking of change, how is IBM navigating this choppy economy?

P: To me it’s no different than post World War II. Then the world was restoring itself economically after the great wars. Now the world is rebalancing itself after a big financial crisis. Then, as now, IBM is aggressively moving into new countries, new markets.

K: IBM is a big ship – $100 billion in size and 427,000 employees worldwide. How do you move fast enough to stay on top of changes and opportunities?

P: We picked three major shifts and came up with the road maps, first the 2010 roadmap, now the 2015 roadmap. The three shifts are one, global economies rebalancing, two, infrastructure technologies like cloud and analytics that are evolving rapidly, and three, changing client technologies like smart phones. Back in 2002 we said the PC era was dead, it will move in this direction of RFID tags, smart phones, those sorts of those things. It wasn’t going to be the PC. We also saw that the infrastructure would have to be horizontal, scalable and secure — let’s call that a smart cloud. I mean, this was in 2002, 2003. We identified these three big macro shifts that everybody could understand at IBM.

K: One of the harder things to get right in a company is common language. Harvard’s Clayton Christensen says if you ask ten people to define, say, disruption or innovation, you’ll get ten answers.

P: Key is to translate the macro shifts into a long-term financial model. People can agree on numbers.

K: How do you balance short-term and long-term financial goals at IBM?

P: We don’t run IBM in quarterly cycles even though there’s tremendous pressure to do that, to give quarterly guidance within a penny. You certainly have to make your numbers. But I just feel it is wrong for the long term run a company like that. That’s why, in 2002, we came up with our 2010 roadmap. That way, IBM could communicate to its investors about the long term.

K: Your roadmap also aligns IBM employees.

P: Yes. It tells our people, here are the growth plays and here is your role in it. If you look at the 2010 road map, it concluded a decade where we took emerging growth countries from 10% of IBM sales to more than 20%. Now the 2015 road map is taking those geographies to about 30%. Over the same period we took software from 25% to 44% of profit. Now we’re saying 50% in 2015. The way we’re going to do that is go after these big growth plays: analytics, emerging the growth countries, cloud and Smart Planet. They are the four big growth plays. Overlying that is a values system, which is the fabric that connects everything.

K: Is it that easy?

P: A Harvard professor, Rosabeth Kanter came to visit because she was writing a book about values and communications and how do you get common language in a complicated place. She went around interviewing all these IBM people around the world and she said, “You know, they actually do say what you said.” She had never seen this before. She thought this could be hard to do. And it is hard to do. But I think if you keep things simple, you can have impact and get 427,000 people to buy in and understand their role.

K: How do most companies blow it?

P: They make it complicated with 15 different variables or 20 different algorithms in 170 countries. That is way too hard to do. You’ll never, in my opinion, get it done that way. If you make it complicated it’s too difficult for everyone to understand it and see their role in it. That’s when you see this thing begin to fall apart.

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